Viterra reaps record profit but plays it safe

Canada’s biggest grains handler, Viterra, will invest in its existing operations this year, allocating $C80 million ($75.8 million) to improve and expand its South Australian business as global economic jitters dampen its appetite for mergers and acquisitions.

Viterra, which owns the former ABB Grains business, handed down a record $C265.4 million net profit yesterday – up from $C145.3 million a year ago. A bumper South Australian harvest fuelled earnings while profits from its agri-products division also rose.

The strong result comes a month before
GrainCorp
provides formal earnings guidance at its annual meeting in Sydney on February 16.

GrainCorp chief executive
Alison Watkins
told The Australian Financial Review yesterday that the grains handler and marketer had enjoyed “a pretty pleasing harvest", and one that had been “a lot more straightforward than last year".

GrainCorp’s costs had been lower than a year ago, when floods and cyclones delayed harvesting a record east coast crop and created havoc on freight networks, she said.

Railways had been cut off, forcing the grains handler to use costly road freight to get grains to port.

“We won’t have the volumes that we had last year but it is fair to say that it has been above average," Ms Watkins said.

GrainCorp received 10.7 million tonnes at January 10. It collected 14.9 million tonnes of grain in fiscal 2011, which drove a record $172 million net profit.

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Last year’s record east coast crop left GrainCorp with double the amount of grains in its storage systems than usual, generating earnings for its ports operations over what are usually quieter summer months.

Viterra, which paid $1.6 billion for ABB Grain in 2009, expects to receive between 6.5 million tonnes and 6.8 million tonnes through its network in fiscal 2012, or the bulk of a 7.9 million tonne crop that the Australian Bureau of Agricultural and Resource Economics and Sciences has predicted that South Australian farmers will produce.

The forecast is nearly one-third higher than the state’s 10-year average of 6.2 million tonnes.

Viterra managing director Mayo Schmidt highlighted eastern Europe and the Black Sea region as an “interesting place" for potential acquisitions but said he favoured investment in the existing network.

Viterra will spent about $C160 million improving and expanding its operations.

“We see this as a time of volatility," Mr Schmidt said. “We will commit a great deal of resources to our internal infrastructure."

The World Bank this week cut its global growth forecast by the most in three years, warning that a recession in the euro zone might exacerbate a slowdown in emerging markets such as India.

As it sharply downgraded its global growth forecasts, the World Bank warned that developing countries would struggle to withstand a second global recession and that “no region and no country" would escape the consequences.

“Our industry should continue to experience growth in coming years as the world’s population continues to increase and living standards improve in developing and emerging countries," Mr Schmidt said.